ANZ Bank has been handed a $25 million penalty by the Federal Court for its failure to deliver a range of promised benefits and discounts to customers, with the Court finding deficient systems and processes within the bank to blame for its errors.

Over a more than 20-year period, ANZ was found to have failed to deliver on promised account benefits, including fee waivers and interest rate discounts, to around 689,000 customer accounts with an Offset Transaction Account or under its ‘Breakfree’ package.

As a result, the Court noted, ANZ had contravened the ASIC Act, the Corporations Act, and the National Consumer Credit Protection Act by making “false or misleading representations to certain customers”.

The Australian Securities and Investments Commission (ASIC), which initiated the court action, said ANZ had made admissions to contravening the law, with the parties agreeing on a statement of facts.

The big four bank will pay more than $211 million in remediation to impacted customers, the regultor confirmed, with the figure “comprising the amount charged in error, interest and compensation”.

ANZ customers were reportedly affected up until September 2021, with the first offences occurring in the mid-1990s, when the Offset Account was introduced.

The bank discontinued the sale of the Breakfree package as of 10 September 2022, removing it from sale six months earlier.

Under the terms of ANZ’s Offset Account customers are entitled to reductions in the interest charged on eligible home and commercial loans that are linked to the account.

Similarly, under the ‘Breakfree Package’ customers, introduced in 2003, who paid an annual fee for the service, were entitled to fee waivers and interest rate discounts on eligible ANZ products, including home loans, credit cards, and transaction accounts, as well as a range of other interest, discount or fee waivers on other ancillary products.

In the wake of the investigation, ANZ confirmed it has enhanced its systems and processes to address these issues and is undertaking remediation programs; the remediation program for these offset account issues now complete, the bank said, with the majority of payments to customers impacted by the Breakfree package also finalised.

ANZ said it is targeting the completion of remediation for Breakfree’s optional additional benefits over 2022-2023.

Systems deficiencies to blame

Court documents state that ANZ’s systems and processes for administering Breakfree and ancillary product benefits were “inadequate”, being largely reliant on manual inputs susceptible to human error.

Further, it said, these systems and processes were “subject to controls that were incompletely understood (beyond a few employees)” and inconsistently applied.

ANZ systems and processes for administering Offset Benefits were found to be “inadequate because the interaction between ANZ’s different systems for calculating interest on loans, processing transactions relating to Offset Accounts, and calculating Offset Benefits resulted in customers not receiving Offset Benefits in several circumstances”. Further, ANZ had no adequate process for effectively identifying and addressing these instances, Court documents state.

The bank was also found to have “failed to maintain systems and processes that were adequate to administer” its Breakfree and Offset benefits, while also failing to monitor or analyse its systems and processes to identify instances of customers not receiving their benefits.

While the Court did recognise ANZ’s attempts to “correct identified deficiencies in its systems and processes” for administering these accounts, as well as implement systems and process improvements to address deficiencies once identified, it was found that “those improvements did not identify and address all instances of customers not receiving their benefits”.

Presiding Court judge, Justice John O’Callaghan said that “the nature and extent of the contraventions was such that they occurred over a substantial period of time and affected a large number of customers, leading to a significant amount of money needing to be remediated.”

He added: “There was also a significant delay in identifying impacted customers, and therefore remediating them.

“Although the nature of the acts or omissions comprising the contraventions was that of inadvertence, the conduct continued as long as it did because of inadequacies within ANZ’s systems, which were compounded by inaction or ineffective action.”

According to the financial services regulator, this was the final civil case filed following ASIC’s enforcement investigations arising from the Financial Services Royal Commission. Total penalties ordered by the Courts from ASIC’s Royal Commission litigation are over $160 million, it said.

Seven further Royal Commission cases remain before the Courts.